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On June 3, the Connecticut General Assembly passed its budget bill for the biennium ending June 2027; the bill includes several updates to the state’s corporate income tax regime. It is currently pending Governor Lamont’s signature. Notable changes include:

• Extending the 10 percent corporate income surtax, currently set to expire for tax years beginning on or after January 1, 2026, for an additional two years to tax years beginning before January 1, 2028. All other provisions of the surtax remain unchanged, including the bar on applying credits against the surtax and the inapplicability of the surtax to companies whose gross income falls below $100 million (except when the taxpayer is included in a combined report).
• Removing the existing $2.5 million combined reporting cap for tax years beginning on or after January 1, 2025. The current cap is a limit on the amount of additional tax that can be imposed on a unitary group above what would have been imposed had each group member filed separately prior to the application of the surtax and available of credits.
• Closing the period during which a combined group can utilize pre-2015 net operating losses (NOL) without regard for the Connecticut 50 percent NOL usage limitation, provided the group elected to forfeit 50 percent of its outstanding NOLs on its 2015 return. A combined group that made this election is permitted to reclaim the NOLs it waived on its 2015 return.

Contact Michael Rylant with questions about .

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The Illinois budget bill, which passed out of the state legislature on June 1, makes numerous changes to the state tax code. The bill is currently pending Governor Pritzker’s signature. Notable changes include:

• Switching from a Joyce apportionment method to a Finnigan approach. Under the new provision, a unitary group will be required to include the sales of each of its members (without regard to whether the member has individual Illinois nexus) when computing its sales factor.
• Expanding the corporate income tax base to include 50 percent of global intangible low-taxed income (GILTI) that was included for federal purposes under IRC 951A. Previously, Illinois allowed a full deduction for GILTI if the taxpayer owned 80 percent or more of the controlled foreign corporation.
• Adjusting the application of the business interest limitation by requiring that any federal reduction in a unitary group’s deductible interest expenses caused by the IRC 163(j) limitation be applied to expense deductions claimed by group members included in the Illinois combined report before applying the reduction to group members excluded from the Illinois combined report. The bill also expands the circumstances under which a taxpayer is required to add-back for state purposes otherwise federally deductible interest expenses. Previously, a taxpayer was not required to add-back interest paid to a foreign related entity if that entity is subject to tax in a foreign country or state or the agreement was entered into at arm’s-length rates and terms. Under the bill, there is no exemption for payments to entities that are subject to tax, and agreements with arm’s-length rates and terms are exempted only if the recipient will pay the interest along to another unrelated person or if the taxpayer establishes by clear and convincing evidence that the resulting adjustment would be unreasonable.
• Creating new sourcing provisions that use a “lookthroughâ€� approach to attribute to Illinois the owner’s income from the sale of the passthrough entity (S corporations and partnerships, other than Illinois investment partnerships). The revised approach will use the passthrough entity’s Illinois apportionment factors, averaging the current tax year with the two immediately prior tax years, to allocate nonbusiness income and to source business income from the sale of the entity.
• Eliminating the 200-transaction threshold for collection of sales tax by remote sellers (but maintaining the $100,000 in gross sales economic nexus standard).
• Establishing three separate amnesty programs. A general amnesty program for taxes administered by the Department of Revenue will run from October 1, 2025 through November 15, 2025; it will cover all taxes due from periods ending between June 30, 2018 and July 1, 2024. The amnesty will provide relief from all penalties and interest on taxes paid during the amnesty. A separate franchise tax amnesty program will run during the same period and cover any franchise tax or licensee fee liabilities for tax periods ending between June 30, 2019 and July 1, 2025. Finally, a “remote retailer amnesty programâ€� will run from August 1, 2026 to October 31, 2026, during which remote retailers (as defined) will be eligible to remit sales and use taxes for transactions that occurred between January 1, 2021 and June 30, 2026 at a “simplified rateâ€� (9 percent for items that would have been taxed at a state rate of 6.25 percent, and 1.75 percent for items that would have been taxed at a state rate of 1 percent). Payment of tax at the simplified rate will be in lieu of all state and local retailer occupation taxes due, and all penalty and interest on any such amounts shall be abated.

Contact Brad Wilhelmson or Andrew Olson with questions about .

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The New Mexico Court of Appeals recently held that a taxpayer qualified for the out-of-state exemption from gross receipts tax (GRT) on placement services performed outside of New Mexico the product of which was initially used in the state. The taxpayer was an out-of-state medical staffing agency that provided medical professional placement services to healthcare operators, across the country, including New Mexico. The Tax and Revenue Department audited and assessed the taxpayer over $2.8 million in unpaid GRT, interest, and a civil negligence penalty, for the period from January 31, 2010, to May 31, 2017. The taxpayer protested the assessment, arguing that it qualified for the out-of-state exemption under N.M. Stat. Ann. § 7-9-13.1, because its services were performed outside New Mexico and the product of the service was initially used in New Mexico.Ìý An Administrative Hearing Officer (AHO) upheld the  assessment, and the taxpayer appealed to the court.

The court’s rationale centered on two aspects: the nature of the service provided by the taxpayer and an erroneous determination made by the AHO. First, the court examined the nature of the taxpayer's services, emphasizing that the primary services—recruitment, placement, onboarding, and billing for health care operators—were conducted electronically from its offices outside New Mexico. The court determined that these activities constituted the core services provided by the taxpayer, and they were performed out-of-state. The medical professionals, who were independent contractors, delivered healthcare services in New Mexico, but these services could not be imputed to the taxpayer, as the taxpayer did not directly provide medical services.

The court then addressed whether the product of the service was initially used in New Mexico as required by the statute. The AHO had determined that the statutory language required that the service result in a tangible product which was not the case here, meaning the taxpayer did not qualify for the exemption. The court found the tangible product determination to be erroneous and not required by the statute. The product was what flowed from the transaction, and the product and use of the taxpayer’s service (i.e., recruitment and placement of medical professionals at a facility) occurred in New Mexico. Consequently, the court concluded that the taxpayer's receipts were exempt from GRT under the out-of-state exemption as in place for the years in question. For more information on , contact Carolyn Owens.ÌýÌý

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The New York Department of Taxation and Finance recently released several Advisory Opinions addressing various sales tax situations. Although they do not drastically change the way sales tax is applied, they do provide clarity certain topics.

• : The Department addressed whether renewal fees charged distributors by a multi-level marketing company to retain their active status as distributors as well as fees for access to the company’s mobile application, a dashboard and a personal website were taxable. The Department concluded the renewal fees are not subject to sales tax, while charges for access to its mobile application software and a dashboard are taxable as sales of prewritten computer software. There was insufficient information to determine if access to a personal website was taxable when sold for an individual price, but it would be taxable if sold as a bundle with the other applications as the company often did.
• : A financial services firm’s investment management products are deemed taxable as sales of prewritten software, with annual fees subject to sales tax due to the standardized nature of the software and its functionality. The offerings were not available for individual purchase, the Department were analyzed them as a single product. In the Department’s view, while the products differed from one another, they were at their core access to software that was used to analyze data to make business decisions, and the activities of any employees were aimed primarily at ensuring the applications functioned properly. A previous TSB (TSB-A-13(12)S) that determined similar products were not taxable does not apply here, as the facts in that instance included several more employee-driven services, making the two sets of service offerings non-comparable.
• : An event planning service inquired regarding its ability to purchase items for resale in offering its services to customers. The Department ruled that the provider can purchase tangible personal property and services for resale when sold to a customer in the same form as purchased when there is no food or catering involved. When food and catering services are provided, the event planner must pay tax on tangible property and services it purchases to provide the service, but it can purchase taxable prepared food and drink for resale and collect tax when provided to the customer. When the planner arranges for catering services as a customer’s agent, the planner must pay sales tax to its vendors as the customer’s agent.
• : An online retailer using a third-party fulfillment service in New York does not qualify as a vendor required to collect sales tax, provided the fulfillment service company and the retailer are not affiliated persons, the retailer has no presence in New York other than maintaining inventory at the fulfillment service, and the activities of  the fulfillment service are limited to those provided by state law. Beginning in 2019, however, the fulfillment service is likely to be considered a marketplace provider responsible for sales tax collection.

For questions regarding these opinions, please contact Judy ChengÌý²¹²Ô»åÌýJenn White.Ìý

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